Specifically, Reitzes wants investors to remember some of what he thinks were positive items on the call.

The change in Apple’s forecasting method — from a single number for the quarter to a range of values, and with no EPS estimate offered anymore — is “generally” something to be “concerned” about, he writes.

“That being said, Apple does face an unprecedented challenge of managing a vast sell-side community with outliers that can skew consensus quite a bit.”

“While the tone was a bit of a concern given underlying concerns around competition, execution and some major gaps in Apple’s product line, we do believe there were some major positives in the quarter like strong cash flow and a conservative margin outlook that could “grow on” investors now that the damage is done”:

Apple’s level of cash generation remains very impressive. We were taught that free cash flow is the most important metric in valuing a company. During the quarter, Apple generated $23 billion in cash from operations and $21.1 billion in free cash flow or $22 per share vs. EPS of $13.81. Total cash and marketable securities grew to $137.1 billion, with $94 billion overseas. For the trailing 12-month period Apple has generated $47.4 billion in free cash flow or over $50/share. With strong cash generation Apple has room to return more cash to shareholders. Just be patient – if slower growth is really coming, Apple’s board will need to eventually reconsider it current cash policies […] At first blush, the 18% y/y revenue growth that Apple reported for December looks like a big slowdown from the prior quarter’s 27% y/y growth, but one should take into account that last year’s result benefited by 8 percentage points or more from an extra week. On a per week basis sales were up 27% y/y overall including 39% growth per week in iPhone revenues, 60% per week growth in iPad revenues and 8% growth per week in net income […] We would like to point out that Apple was able to post a gross margin of 38.6% including a sizeable hit from warranty accruals sequentially. Apple disclosed in its 10-Q its ending warranty accruals for the December quarter totalled $2.31 billion, up 41% from $1.638 billion at September-end. The increase in the balance of $672 million accounted for a 123 bp hit to gross margins q/q. We believe that accruals increased as a result many new products released during the December quarter and the overall increase in sales during the Holiday Season. However, for next quarter we expect warranty accruals to be a relative tailwind q/q […] Operating margins by no means pressured at least in December, Nor Were iPhone Prices […] Although there are concerns about lower gross margins in general, Apple has been able to offset gross margin generation by being more efficient and maintaining solid operating margins.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.